What is Predatory Lending and How to Avoid it
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What is predatory Lending?
What you need to watch out for
Predatory Loan Indicators & Sales Practices
Predatory Loan Terms
Things you should never do
What you can do
Before signing loan documents, you have the right to know
Shop Around
Resources
What is predatory Lending?
It can be any--or all of the following:
- A loan designed to strip equity from the owner of the property
- An unaffordable or unreasonable loan designed to be refinanced repeatedly
- A deceptive loan designed to force the owner into foreclosure
What you need to watch out for
- A loan with payments you can't afford
- Product Steering (being guided toward a loan that is not in your best interest)
- Excessive fees and points paid to mortgage lender, real estate brokers or appraisers
- Flipping (repeated refinancing)
- Prepayment penalties without disclosure
- Single Premium Credit Life Insurance Policies
- Daily interest changed when payments are late
- Upfront fees or costs just for making a loan application
Predatory Loan Indicators & Sales Practices
- Aggressive solicitations to targeted neighborhoods
- Steering due to protected class to high rate lenders
- Home improvement scams
- Purposely structuring the loan with payments the buyer cannot afford
- Falsifying loan applications such as inflated income level, assets or incorrect age
- Changing loan terms at closing
- Loans in excess of 100% of the value of the property
- Adding insincere co-signers
- Making loans to mentally incapcitated homeowners
- Failure to provide accurate loan payoff amounts
- Forging signatures on loan documents
- Paying off lower interest mortgages
Predatory Loan Terms
- Inflated appraisal values
- Excessive broker fees
- High points
- High annual interest rates
- Padded closing costs
- Balloon pyaments
- negative amortization
- Required credit insurance
- Required homeowners insurance with a particular company
- Falsely indentifying loans as lines of credit
- Itemizing duplicate services and charging separately
Things you should never do
- Sign a blank document or anything to be filled in later
- Sign anything you don't like or don't understand
- Trust an ad promising "No credit? Bad credit? No problem."
- Stop making your current house payment while you wait to close on a loan
Don't be afraid to ask questions and seek outside advice
What you can do:
- Be cautious of trusting someone you just met that wants to be your best friend and sell you something at the same time
- Attend a homeownership education course offered by the U.S. Department of Housing and Urban Development (HUD)-approved, non-profit counseling agencies.
- Meet with a housing counselor to review your loan documents with you.
- Get a second opinion from another lender
- If you are refinancing, you have the legal right to change your mind up to three days after the loan closes
- If it sounds too good to be true, it probably is
Before signing loan documents, you have the right to know
- The monthly payment amount
- The total cost of the loan (the amount you must repay including interest and fees)
- The annual percentage rate
- How long you have to pay back the loan
- If there is a prepayment pemalty
- Whether taxes and insurance are included in the payment
- If there is a balloon payment (lump sum due)
Shop Around
- Don't get pressured into signing anything until you feel comfortable
- Seek advice from a housing counselor or call another lender before you decide
Resources
Boulder County Housing Counseling Program - http://www.co.boulder.co.us/cs/ho/counseling/index.htm
U.S. Department of Housing and Urban Development (HUD) website - http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm
If you feel you have been the victim of predatory lending because you are a member of the following protected classes:
Race - Color - Religion - Sex - Handicap - Familial Status - National Origin - Martial Status - Creed - Ancestry
Please contact the Office of Community & Neighborhood Relations and request a Fair Housing Packet
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